Boom, not bust – Part 1

Oilfield Technology Correspondent Gordon Cope shows how North America’s oil and gas industry is growing from strength to strength.

North America’s oil and gas industry is booming. According to PIRA Energy Group, a consultancy, the US is expected to average 12.1 million bpd production of oil, natural gas liquids (NGLs) and condensates this year, making it the world’s largest producer of combined crude liquids. According to the US Energy Information Administration (EIA) total wet gas production in the Lower 48 US, which stood at 48 billion ft3/d in 2007, surpassed 74 billion ft3/d in July 2013.

In addition, according to the National Energy Board (NEB), Canada is currently producing 3.8 million bpd crude and 13.2 billion ft3/d of marketable gas. The NEB expects Canada’s marketable natural gas production to rise to 17.4 billion ft3/d by 2035, and crude production to increase to 5.8 million bpd in that same time period.

The boom in the US is largely due to two major technological advances; horizontal drilling, which greatly increases the wellbore’s exposure to a reservoir, and hydraulic fracturing, which shatters the reservoir in order to allow large volumes of hydrocarbons to escape. Although shale gas production first began in the Barnett formation in Texas, it has since spread to several other basins, with astonishing success. Production from the Marcellus Shale formation, which lies below West Virginia, Pennsylvania and Ohio, is nearing 15 billion ft3/d, approximately 20% of all lower 48 production.

Explorers are also releasing crude from liquids-rich shale. North Dakota’s production of light, sweet oil from the Bakken formation has risen from 100 000 bpd in 2005 to over 1 million bpd in late-2013. The Eagle Ford formation in South Texas also produces gas condensate and oil, and the play is expected to grow to 1 million bpd by 2014.

The oilsands, located in northern Alberta, contain almost 2 trillion bbls of bitumen (over 168 billion bbls recoverable), trapped in sand and carbonate rock. The NEB expects oilsands production to increase from current levels of 1.9 million bpd to 5 million bpd by 2035. Recent announcements of new projects include Shell’s Jackpine mine expansion (an additional 100 000 bpd, to a total of 300 000 bpd), Suncor Energy’s Fort Hills mine (73 000 bpd by 2017), and Shell’s Carmon Creek in-situ project (80 000 bpd).

Although the western provinces dominate the Canadian oilpatch, the East Coast has had a thriving hydrocarbon community for several decades. In 2013, Newfoundland and Labrador produced an average of 230 000 bpd of crude, primarily from offshore fields situated southeast of Newfoundland in the Grand Banks. And the future looks bright; ExxonMobil is building a gravity-based production structure for its C$ 14 billion Hebron heavy-oil project off the east coast of Newfoundland. Located near Hibernia, the 1 billion bbl field is expected to add 150 000 bpd of production over a 30 year period. Start-up is planned for 2017. Husky expects its South White Rose field to come on-stream later this year, and the West White Rose field in 2017.

Further offshore, Statoil and Husky have made three significant discoveries in the deepwater Flemish Pass Basin; Mizzen, Bay du Nord and Harpoon. Husky estimates that the Mizzen and Bay du Nord prospects hold 530 million bbls of recoverable oil. No estimates have been released regarding the Harpoon find, but company executives are confident that the discoveries can be commercially developed. Plans are underway to secure a deepwater rig to test further prospects in 2015. The region has the potential to produce at least 150 000 bpd by 2020 - 2021.

Many exciting plays are just beginning to emerge. The Duvernay formation, which underlies much of the Western Canadian Sedimentary basin, is one of the richest shale plays in existence. The Alberta Energy Regulator (AER, the successor to the ERCB) recently reckoned that the Duvernay (as well as the Montney and Muskwa formations), held 3300 trillion ft3 of gas and 420 billion bbls of oil. Major oil companies have already spent over C$ 6 billion building land positions, and are now beginning to explore its potential. Chevron recently completed an initial 12-well exploration drilling programme in the liquids-rich portion of the Duvernay. The US-based company reported that liquids yield for the wells ranged from 30 - 70%, with initial flow rates up to 7.5 million ft3 of natural gas per day and 1300 bbls of condensate per day.

Trials and tribulations

The renaissance of North America’s oil and gas industry has not been without its detractors, however. Spurred by the burning of coal, crude and natural gas, the concentration of greenhouse gases (GHGs) in the atmosphere has been rising at a steady clip, eclipsing 400 ppm for the first time in civilised history. Climate scientists have associated the increase with the gradual warming of the atmosphere and oceans. If left unchecked, there is concern that glaciers will melt, causing sea levels to rise and inundate coastal regions. Many species will also suffer stress and potential extinction. Weather patterns will be altered, and humans increasingly subjected to extreme weather events.

Canada’s petroleum industry comes under special scrutiny over oilsands production, which requires the use of additional energy to coax the heavy bitumen out of the ground and upgrade it to higher quality crude. This extra processing causes it to be considered ‘dirty oil’, and various jurisdictions, including California and the EU, have tried to have it banned.

Environmentalists have strongly objected to moving oilsands output from Alberta to heavy-crude hungry refineries in the US Gulf Coast. In 2008, TransCanada proposed the 2720 km Keystone XL pipeline that would deliver more than 800 000 bpd of bitumen and heavy crude directly to Texas from Alberta. Since then, presidential approval for the US$ 5.3 billion line has been thwarted by White House protests and other acts of opposition. The decision for the project has now been postponed until after the mid-term 2014 elections, and many pundits speculate that it may not take place until a new administration takes office after 2016.

Concerns over hydraulic fracturing, have arisen. During the process, millions of litres of water and viscosity-reducing additives are injected under high pressure into reservoirs, crushing the rock and increasing permeability. Environmentalists are concerned that escaping fluids might pollute aquifers. Residents in arid regions worry that the practice is diverting scarce freshwater resources.